Since the middle of last month, many U.S. stock indexes have bottomed out and rebounded; so far (28th) have recorded different degrees of increase; among them, the S&T index and Nasdaq rose to double digits, with 11.1% and 14.3% respectively. The rebound is extremely strong. The strong rebound of US stocks, in addition to the fact that investors speculate on US interest rate hike cycles that may end before the end of the year, causing bond interest rates to soften at high levels, improving the market atmosphere and the performance of growth stocks, the market was extremely pessimistic and the market was extremely oversold, which can explain the recent strength of US stocks.
First of all, pessimistic emotions. The American Association of Individual Investors (AAII) will question more than 160,000 members every week, asking them whether they are bullish, no changes or bears about the direction of the stock market in the next six months. Based on past experience, this indicator is often regarded by many investors as a reverse indicator of the market.
From the AAII US stock market, the net value changes are positive and the net value is negative (gray bar; that is, the percentage of positive and negative every week is negative), it can be seen that the net value level was urgently inserted earlier, and it was lower than the -40 level in late June (Figure 1), reflecting that the market was extremely light and pessimistic about the outlook for the US stock market at that time. The last time a similar situation occurred was the end of the 2009 financial tsunami. From a historical perspective, when the net value level is at a relatively low position, the time when the US stock market is at a periodic bottom or rebound is very close (Figure 1). Therefore, the market has rebounded strongly in such an extremely pessimistic atmosphere recently.
Figure 1: The net value level fell to the low level during the financial tsunami
Secondly, in deep oversold aspects. Figure 2 shows the S&P 500 index and constituent stocks' stock prices are higher than the 50-day line (middle line market wide). It can be seen that in mid-June this year, this ratio fell to only about 2%, that is, almost all index constituent stocks fell below the 50-day moving average, reflecting that the market performed abnormally oversold at that time. The last time I was so oversold was in the early days of 2020, that is, the early stages of the outbreak of the epidemic.
Figure 2: The mid-line market wide fell to near zero in mid-June
It can be seen that the market atmosphere was extremely pessimistic earlier, and the market conditions were deeply oversold, which triggered a strong rebound in the recent US stock market. So, at this point, how much room does the index have to rise?
From the performance of the mid-line market width in the past year, it can be seen that the market width can often rebound from a low level to a level of about 80% before reaching its peak and falling. As the mid-line market widening rebounded to 75% the next night, the oversold situation had been greatly improved earlier, which means that the oversold rebound trend was almost completed. Technically, if the S&P 500 rebounds to 4160 points, that is, the rebound from the end of May to early June may hover at the bottom of the zone from late February. I believe that technical resistance is not light.
text/Caizhifang
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